Question 1

The use of money contributes to economic efficiency because

Accepted Answer

A)  governmental direction of the production and distribution of output can be avoided by using money. 
B)  roundabout production could not occur without the availability of money. 
C)  it is necessary for the creation of capital goods. 
D)  it promotes specialization by overcoming the problems with barter. 
A)  governmental direction of the production and distribution of output can be avoided by using money. 
B)  roundabout production could not occur without the availability of money. 
C)  it is necessary for the creation of capital goods. 
D)  it promotes specialization by overcoming the problems with barter.

Question 2

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

Accepted Answer

A)  have some firms go out of business. 
B)  attract more resources toward it. 
C)  experience entry of new firms. 
D)  get government protection from failure. 
A)  have some firms go out of business. 
B)  attract more resources toward it. 
C)  experience entry of new firms. 
D)  get government protection from failure.

Question 3

The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of

Accepted Answer

A)  creative destruction. 
B)  derived demand. 
C)  capital accumulation. 
D)  the difference between normal and economic profits. 
A)  creative destruction. 
B)  derived demand. 
C)  capital accumulation. 
D)  the difference between normal and economic profits.

Question 4

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

Accepted Answer

A)  a more stable macroeconomy with fewer recessions 
B)  Firms are better able to attract inputs, as these inputs do not have to share the risk. 
C)  Government agencies are better prepared to help when businesses fail. 
D)  consistently lower prices for consumers 
A)  a more stable macroeconomy with fewer recessions 
B)  Firms are better able to attract inputs, as these inputs do not have to share the risk. 
C)  Government agencies are better prepared to help when businesses fail. 
D)  consistently lower prices for consumers

Question 5

The use of money for exchange and trade

Accepted Answer

A)  increases the importance of barter. 
B)  fosters more specialization in production. 
C)  reduces consumer sovereignty. 
D)  raises the need for a coincidence of wants. 
A)  increases the importance of barter. 
B)  fosters more specialization in production. 
C)  reduces consumer sovereignty. 
D)  raises the need for a coincidence of wants.

Question 6

If competitive industry Y is incurring substantial losses, output will

Accepted Answer

A)  expand as resources move toward industry Y. 
B)  contract as resources move toward industry Y. 
C)  contract as resources move away from industry Y. 
D)  expand as resources move away from industry Y. 
A)  expand as resources move toward industry Y. 
B)  contract as resources move toward industry Y. 
C)  contract as resources move away from industry Y. 
D)  expand as resources move away from industry Y.

Question 7

The market system is also known as _, while the command system is also known as _.

Accepted Answer

A)  capitalism; socialism 
B)  socialism; communism 
C)  central planning; laissez faire 
D)  a production system; a planning system 
A)  capitalism; socialism 
B)  socialism; communism 
C)  central planning; laissez faire 
D)  a production system; a planning system

Question 8

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as

Accepted Answer

A)  consumer sovereignty. 
B)  the invisible hand. 
C)  derived demand. 
D)  creative destruction. 
A)  consumer sovereignty. 
B)  the invisible hand. 
C)  derived demand. 
D)  creative destruction.

Question 9

Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively.   If the price of product A is $0.50, the firm will realize

Accepted Answer

A)  an economic profit of $4. 
B)  an economic profit of $2. 
C)  an economic profit of $6. 
D)  a loss of $3. 
A)  an economic profit of $4. 
B)  an economic profit of $2. 
C)  an economic profit of $6. 
D)  a loss of $3.

Question 10

The two basic markets shown by the simple circular flow model are

Accepted Answer

A)  capital goods and consumer goods. 
B)  competitive and regulated. 
C)  product and resource. 
D)  household and business. 
A)  capital goods and consumer goods. 
B)  competitive and regulated. 
C)  product and resource. 
D)  household and business.

Question 11

Private property

Accepted Answer

A)  discourages cooperation because people don't want to part with what they own. 
B)  discourages innovation, as people are often afraid to risk losing their own property. 
C)  encourages owners to maintain or improve their property so as to preserve or enhance value. 
D)  does everything indicated by the other answers. 
A)  discourages cooperation because people don't want to part with what they own. 
B)  discourages innovation, as people are often afraid to risk losing their own property. 
C)  encourages owners to maintain or improve their property so as to preserve or enhance value. 
D)  does everything indicated by the other answers.

Question 12

The most efficient combination of resources in producing a given output is the combination that

Accepted Answer

A)  comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. 
B)  minimizes the cost per unit of output. 
C)  uses the smallest total quantity of all resources. 
D)  conserves most on the use of labor. 
A)  comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. 
B)  minimizes the cost per unit of output. 
C)  uses the smallest total quantity of all resources. 
D)  conserves most on the use of labor.

Question 13

The incentive problem under communist central planning refers to the idea that

Accepted Answer

A)  planners had to direct required inputs to each enterprise. 
B)  workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products. 
C)  the immediate effect of more investment was less consumption. 
D)  exports had to be equal to imports for a central plan to work. 
A)  planners had to direct required inputs to each enterprise. 
B)  workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products. 
C)  the immediate effect of more investment was less consumption. 
D)  exports had to be equal to imports for a central plan to work.

Question 14

Insurance companies facilitate the transfer of risk from

Accepted Answer

A)  those who have a low-risk tolerance to those with high risk-tolerance. 
B)  those who have a high-risk tolerance to those with low risk-tolerance. 
C)  the insurance companies' owners to the insurance policyholders. 
D)  insurance policyholders to the government. 
A)  those who have a low-risk tolerance to those with high risk-tolerance. 
B)  those who have a high-risk tolerance to those with low risk-tolerance. 
C)  the insurance companies' owners to the insurance policyholders. 
D)  insurance policyholders to the government.

Question 15

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

Accepted Answer

A) True 
 B)False

Question 16

Having a high fixed salary is what motivates entrepreneurs to make prudent decisions is dealing with business risk.

Accepted Answer

A) True 
 B)False

Question 17

Laissez-faire capitalism limits the government's economic functions to the following, except

Accepted Answer

A)  protecting private property rights. 
B)  establishing a legal environment to enforce contracts among individuals. 
C)  preventing individuals and firms from coercing others. 
D)  setting prices of individual goods and services. 
A)  protecting private property rights. 
B)  establishing a legal environment to enforce contracts among individuals. 
C)  preventing individuals and firms from coercing others. 
D)  setting prices of individual goods and services.

Question 18

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Accepted Answer

A) True 
 B)False

Question 19

Copyrights and trademarks are examples of

Accepted Answer

A)  capital goods. 
B)  human capital. 
C)  property rights. 
D)  public goods. 
A)  capital goods. 
B)  human capital. 
C)  property rights. 
D)  public goods.

Question 20

In a market economy, the distribution of output will be determined primarily by

Accepted Answer

A)  consumer needs and preferences. 
B)  the quantities and prices of the resources that households supply. 
C)  government regulations that provide a minimum income for all. 
D)  a social consensus as to which distribution of income is most equitable. 
A)  consumer needs and preferences. 
B)  the quantities and prices of the resources that households supply. 
C)  government regulations that provide a minimum income for all. 
D)  a social consensus as to which distribution of income is most equitable.

Exam 2: The Market System and the Circular Flow

The use of money contributes to economic efficiency because

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

The use of money for exchange and trade

If competitive industry Y is incurring substantial losses, output will

The market system is also known as _, while the command system is also known as _.

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as

The two basic markets shown by the simple circular flow model are

Private property

The most efficient combination of resources in producing a given output is the combination that

The incentive problem under communist central planning refers to the idea that

Insurance companies facilitate the transfer of risk from

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

Having a high fixed salary is what motivates entrepreneurs to make prudent decisions is dealing with business risk.

Laissez-faire capitalism limits the government's economic functions to the following, except

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Copyrights and trademarks are examples of

In a market economy, the distribution of output will be determined primarily by

Limits, Alternatives, and Choices

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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